America feeds the wealthy, not the poor
If the prices that foreign nations pay for United States grain had kept pace with the change in OPEC oil prices since 1970, the US balance of payments in 1978 would have been a positive $8.5 billion instead of a $13.8 billion deficit.
That the OPEC monopoly has been directly responsible for the enormous increase in energy prices is well known. Also well known is that agriculture is a major source of US export earnings. Agriculture accounts for 20 percent of all US exports, over half of which is grains.
What has been ignored almost totally in the dialogue over inflation and the energy crisis is the vital impact on the whole economy of the change in the terms of trade as far as prices for petroleum and grain are concerned. In 1970 the price of a metric ton of wheat equalled that of 18 barrels of crude petroleum on the world market. However, by 1978 a ton of wheat would purchase only eight barrels. Now, with the price of crude set at $30, a ton of wheat will buy only five barrels of oil.
At $30 a barrel and with current grain prices, the US has to export 3.6 times as much wheat to buy the same amount of oil that could be purchased in 1970. The change in the terms of trade for corn and soybeans is even worse, since more than five times as much of those grains is now needed to import an equivalent quantity of oil.
The primary purpose of this analysis is to underscore the impact upon the whole population of the OPEC-imposed changes in the terms of trade on the two vital export items, food and energy. However, the particular plight of the farmer cannot be totally ignored.
Since the 1960s, inflation has soared well beyond 200 percent, with food bought in the grocery stores a bit higher. However, prices paid for grains (and soybeans) have not kept pace. Only by enormously increasing production have mose farmers been able to survive. Thus, whereas total grain production was 183 mmt. (million metric tons) in 1970, the output estimated for 1980 is 293 mmt. The bulk to that increase of 60 percent has gone to exports. That America's farmers can increase grain output another 60 percent in the 1980s is most doubtful, emphatically if they remain caught in the current cost-price squeeze.
According to a May study, the estimated cost of producing corn in 1980 is $3 a bushel. However, prices have remained well below $2.50 at the farm gate. Prices for other grains are similarly depressed in relationship to farm production costs. Therefore, without a major reversal, most grain farmers are destined to suffer serious losses in 1980.
Exports to the hungry nations account for only a small part of total US food exports. Indeed, for the desperately poor, special programs exist, and in dollar terms such programs accounted for only 5.5 percent of total US food exports in 1978.
Over half of all US agricultural exports in 1978 went to the most wealthy of the world's nations, those which, like the US have an annual GNP per capita of over $7,000. If the line is drawn at the level of a GNP per capita above $3,000 thus including such nations as italy and the Soviet Union, over two-thirds of all US agricultural exports went to such well-fed nations.
Just counting wheat and coarse grains (thus excluding soybeans), on balance grain imports (in millions of metric tons) in 1978 were: Japan 22.8; Western Europe 20.2; USSR 16.3; OPEC nations 9.3. Since the US exports 62 percent of all such grains, its share of the 69 mmt. imported by those nations was some 56 mmt.
The price those well-to-do nations paid for the US share amounted to some five to six billion dollars. However, had they been charged 1970 oil-equivalent prices, the dollars earned would have been some 2.5 times greater, or $14 billion. That difference alone would nearly have put the US balance of payments in the black for 1978.
The OPEC nations alone would have had to pay some $2.2 billion for their grain instead of only some $900 million. In that regard a comparison of GNP per capita as of 1977 (since then oil prices have more than doubled) in the US and some of the richest OPEC nations is very revealing: United States, $7,860; Saudi Arabia, $9,210; Kuwait, $13,080; United Arab Emirates, $18,140.
As documented above, Japan and Western Europe are the two largest grain importers in the world. Japan is thriving on auto and electronics exports, largely to the United States. Germany has only had some 5 percent inflation. Their bill for oil, which they have paid with little protest, is enormously greater than what they pay for food imports. Most irritating is the subsidized prices those nations pay their own farmers for producing grain.
Even after taking into account the costs paid to import grain, in 1978 German farmers received 59 percent more for their wheat than did US farmers. Japanese farmers received 463 percent more.
Moreover, with the precipitous decline in the relative value of the dollar since 1970, other developed nations are paying in real terms only a fraction of the stated prices (in the German case only about 30 percent). In short, because of the decline in the value of the dollar, the real price Germans pay for grain imported from the US is actually less than the real price paid in 1970.
Every dollar not spent on imports, such as grain, is a dollar saved to be spent domestically. Therefore, in a real sense, cheap US grain is subsidizing the population of the well-to-do nations.
The problem cries for the creation of an organization of grain-producing nations, which would insist upon receiving a price for grain that assures a profit in face of world inflation fueled by the OPEC monopoly. The same agreement among the grain exporters could include provision for subsidized purchases by the truly hungry developing nations. In effect, thereby, the grain-exporting nations to help in the task of feeding the world's poor. Ironically, just such a two-price system has been urged upon the OPEC nations to ease the burden on the developing nations. Yet, they have totally rejected such suggestions.
The objection is raised that no such scheme would work because the grain-importing nations would turn to other producers for their grain. The reality is that, in the quantities involved, there is no other source.
Together, Argentina, Australia, Canada, and the US supply over 80 percent of all world exports of wheat and coarse grains. Assuming that Argentina might originally balk at joining such an organization, the other three still command 74 percent of the market.